1325281--3/16/2007--KAPSTONE_PAPER_&_PACKAGING

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{cost, regulation, environmental}

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{stock, price, share}

{cost, operation, labor}

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{cost, contract, operation}

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{operation, natural, condition}

{acquisition, growth, future}

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Risks associated with our business If the benefits of our acquisition of KPB do not meet the expectations of the marketplace, or financial or industry analysts, the market price of our common stock may decline. We are dependent upon key management executives whose loss may adversely impact our business. KPB s operations may not be able to generate sufficient cash flows to meet KapStone Kraft s debt service obligations. A default under KapStone Kraft s indebtedness may have a material adverse effect on our business and our financial condition. Servicing debt could limit funds available for other purposes. Future acquisitions of businesses by us would subject us to additional business, operating and industry risks, the impact of which cannot presently be evaluated, and could adversely impact our capital structure. If we fail to maintain effective systems for disclosure controls and internal controls over financing reporting as a result of the acquisition of the KPB assets, we may be unable to comply with the requirements of Section 404 of the Sarbanes Oxley Act of 2002 in a timely manner. Operation of KPB will be dependent upon certain operating agreements with IP. If we fail to extend or renegotiate the collective bargaining agreements with the United Steelworkers Union as they expire from time to time, or if our unionized employees were to engage in a strike or other work stoppage, our business and operating results could be materially harmed. A few customers account for a significant portion of our revenues. The Roanoke Rapids facility consists of a single paper mill from which all of its kraft paper and linerboard products are manufactured. If the equipment at the mill malfunctions, KPB may be unable to manufacture its products. Although IP has agreed to indemnify us with respect to environmental liabilities that are being assumed, we may incur significant remediation and other costs if such losses exceed the cap on indemnification or occur after the expiration of the indemnification period. If the actual employee pension and post-retirement liabilities we have assumed are greater than currently estimated, it could have a negative effect on our results of operations and financial condition. The impact of severe weather on roundwood availability could result in unfavorable wood pricing. Our officers and directors control a substantial interest in us and thus may influence certain actions requiring a stockholder vote. Some of our officers and directors may in the future become affiliated with entities engaged in business activities similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in determining to which entity a particular business opportunity should be presented. Risks associated with the paper, packaging, forest products and related industries. The paper, packaging, forest products and related industries are highly cyclical. Fluctuations in the prices of and the demand for a target company s products could result in smaller profit margins and lower sales volumes. Difficulty obtaining timber at favorable prices, or at all, may negatively impact companies in the packaging industry. An increase in the cost of purchased energy or chemicals would lead to higher manufacturing costs, thereby reducing margins. Paper, packaging and forest products companies face strong competition. Certain paper and wood products are vulnerable to long-term declines in demand due to competing technologies or materials. Packaging companies are subject to significant environmental regulation and environmental compliance expenditures, as well as other potential environmental liabilities. Risks Associated with Stone s Warrants We may choose to redeem our outstanding warrants at a time that is disadvantageous to our warrant holders. Although we currently have an effective registration statement covering the issuance of the shares underlying the warrants issued in our initial public offering at the time that the warrant holders exercise their warrants, we cannot guarantee that a registration statement will continue to be effective, in which case the warrant holders may not be able to exercise their warrants.

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1325281--3/16/2007--KAPSTONE_PAPER_&_PACKAGING_CORP